Do you still believe in Santa?
Do you believe in the Santa Rally?
Is the Santa Rally real or a figment of the market’s imagination?
In the last 16 years since the ASX 200 has been around as an index, for 12 of those 16 years we’ve seen a rise in the month of December. Only four years saw losses for the month.
So it does seem as though the market tends to rise in December.
So if there is a 75% chance (based on the last 16 years) of a rise in December, is there any correlation with returns for the year?
When you look at returns, it seems there is a much greater chance of a Santa Rally if the return for the year has been good.
Take a look at these numbers:
Strictly speaking, the Santa Rally is the time between Christmas and the New Year.
So if you look at those figures above, then the statistics paint an even better picture.
In the last 16 years, we’ve seen 14 Santa Rallies. The only years that we didn’t see a Santa Rally were 2002 and 1995.
So if history is any guide, expect another Santa Rally this year to top off a year of strong gains.
What is it that drives the end of year rally?
December marks the last month of the financial year for US companies. So it may be due to something known as ‘window dressing’ by portfolio managers.
Window dressing happens at the end of quarter and end of year. It’s where portfolio managers buy shares that have performed well so that when their fund holdings are published, it lists the best performers for the year.
It also means that individuals are shuffling their portfolios to manage tax considerations before the end of the tax year.
Only time will tell what will happen this year.
But if history is any guide, there may be a little Santa boost to stocks in your stockings at the end of the year!
Here’s to a safe and blessed Christmas. Happy trading!
Julia Lee Equities Analyst Bell Direct Have you started trading with Bell Direct for just $15 a trade? Register now for free.